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5/24/08

Two pieces of news have recently hit, and both look very good developments. Firstly, the Colombian gov't has issued a statement confirming Marulanda's death. But more importantly, reports state that FARC top brass want to surrender and also release their hostages. Here's how AFP is relaying the news.

Colombian President Uribe says FARC ready to release hostages

Colombian President Alvaro Uribe said Saturday he has received "calls" from some Marxist FARC rebel leaders who claimed they were ready to hand themselves over and free hostages including Franco-Colombian politician Ingrid Betancourt.

In a potentially major breakthrough, just after Colombia confirmed the death of FARC leader Manuel Marulanda, Uribe said "the government has received calls from the FARC in which some of the leaders announced their decision to leave the FARC and hand over Ingrid Betancourt if their freedom is guaranteed."

"The government's answer is 'yes, they are guaranteed freedom'" if they handed over hostages, Uribe said in a speech in the country's southwest.

It had to happen, didn't it? The combination of the sharp rise in oil prices combined with the ratcheting up of anti-Chavez rhetoric seen in the past few weeks (for example the FARC laptop baloney that is now unravelling), it was only a matter of time before the business world got in on the act.

".....The obvious place to invade is Venezuela. Since the 1.8 trillion barrels of Venezuelan oil deposits consist largely of the Orinoco tar sands, a Venezuelan oil-related invasion would impose an additional requirement: to keep the environmentalists away, in order that reserves could be exploited with maximum efficiency........."

And just to make sure the message is nicely implanted in the memory Hutchinson finishes off with this:

"...In summary, a sharp rise in US and world interest rates is the best way to solve the problem of spiraling energy and commodity prices, which will probably not solve itself. If that doesn’t work or is “politically impossible” it’s time to prepare the 82nd Airborne for jungle warfare in the OrinocoBasin..."

Hutchison, former international merchant banker, advisor to the US Treasury Department and now regular columnist, is also the author of the book "Great Conservatives". As Michael Shedlock points out on his excellent website "Mish's Global Economic Trend Analysis":

"....The ideas espoused by Hutchinson are as dangerous as ideas can get. And when the world sees such proposals it's no wonder many countries despise us. True conservatives do not go starting wars because they do not like the price of a commodity. True conservatives do not believe in theft. But the most absurd thing is that Hutchinson believes "The principal influence behind the huge rise in oil prices has been speculation" yet his solution is to invade Venezuela. Since Venezuela is not the driving force behind said speculation, such a proposal is clearly deranged thinking. There is no other way of looking at it...."

Damn right, Mish, Damn right. Dangerous shit like this needs to be confronted immediately, else it might fester in the minds of those looking for an easy target to blame for the price of gasoline.Remember your Economics 101:

INFLATION IS A MONETARY PHENOMENON.

And while you're at it, remember what two time congressional medal of honor winner General Smedley Butler wrote in 1935, cos it's as true today as it was back then:

...here's a thought. If it's so wonderful and such a beacon of hope (McCain dixit) then why do so many Colombians want to leave the place, and are willing to pay good money for the privilege, too?

This story caught my eye (you have to scroll down to the bottom but it's there, dudes. Or this is the original German language link). According to Colombian journalist Hector Abad Faciolince, the US embassy in Bogota processes 1,500 US visa applications a day, and because they charge a pretty penny for an interview with the embassy officials it has turned into a lucrative way of paying diplomatic expenses for the USA. Now at an average of 20 working days a month, that's 360,000 people a year, or if you like, 5% of the whole population since Uribe came to power*. In the words of Hector:

"So many Columbians apply for US visas that simply processing all these applications has become a lucrative business which actually pays for a large chunk of the running costs of the US embassy in Bogota. Every day they deal with 1,500 people who have booked an appointment and paid a fee (which is not refundable) of 156 dollars. This means that Columbian citizens hand over 234,000 US dollars a day, 4.5 million dollars a month, or 50 million a year, just to get an appointment which will allow them to apply for a visa (which doesn't mean to say they will get one). A further boon to the business is that most appointments are given and paid for months, sometimes up to a year in advance."

Once again, dear reader, weigh this story against the normal line of how Venezuelans are the only people wishing to leave their country in droves. As you might have guessed from the content of the last few posts, this Otto is getting pretty pissed off with all the bullshit lies written about Latin America.

*Add another percentage point or two for the number of Colombians executed, murdered, disappeared etc in the same period.

In the Colombian weekly magazine "Semana", Colombia's Defence Minister Juan Manuel Santos has reported that Manuel Marulanda, known as "tirofijo" (sureshot) died of a heart attack on the 26th March aged 80. He's a Reuters wire report on the story. Now before this goes any further, it must be pointed out that this is not the first time reports of Tirofijo's death have been made, and the previous 17 over the last 40 years have been exaggerated á la Mark Twain. However this is the nation's Defence Minister making a pretty assertive public statement, and he'd look pretty silly afterwards if it turned out to be bad intel. Santos also said that the information had come from a source that had always been 100% reliable previously, and was also pretty definite about dates and places.

Semana.com front page today

If confirmed, this is a major blow to the FARC and should be treated as good news all round. It matters not whether you like the Colombian gov't of Alvaro Uribe or not, but the words of President Lula da Silva before the recent the EU-LAC summit in Peru certainly do come to mind. When explaining to Euro-dignitaries why there is nothing to fear from the leftist movements in the region, he said that today's South America is not the continent of a couple if decades ago, when military dictatorships and guerrilla movements were the norm. Lula quite rightly pointed out that today, every single serious political body on the continent except for the FARC embraces the rule of democracy and looks to win its fight via the ballot and not the bullet.

Well said Lula, and perhaps if the demise of Tirofijo is confirmed the FARC will stop its armed conflict against a democratically elected government that has at its head the president with the highest local approval ratings in the region. Tirofijo's apparent demise may also explain the recent revolts and defections in the FARC ranks. However the wholesale disbanding of the FARC isn't so likely, because the FARC is known to run a mighty big cocaine operation these days, and it will be difficult for them to turn their backs on that kind of money. In fact, if everything they say is true about the FARC and cocaine, it does seem strange that they'd need to top up the megamillions in drug money with a comparatively piffling $300m from Chavez, as the Colombian fake laptop info claims.

Along with 9th July official independence day, 25th May is an important date in Argentina. It is a national holiday that celebrates the day when a bunch of Buenos Aires bigwigs unilaterally declared independence from Spain. Nowadays, visit and city you like in Argentina and you'll find a road named "25 de Mayo", and you'll often find a monument or road of something named "Primera Junta" after the small group of dignitaries that dared oppose Spain.

Being primarily a moment in the history of Buenos Aires (the rest of the country fell in line on later dates, and even then there where Argentine regions that opposed the move for independence) it's usually celebrated with a church service in the main Cathedral with all the main actors present. Not this year. The lamentable Klishtina gov't has decided to put on a show in the city of Salta. Firstly, she and her gov't don't have to listen to a sermon from the head the the Argentine church slagging her off. This was said outright by several of her gov't, and prvoked the response fromt he church that this break in tradition shows just how little Klishtina cares about the real history of the country. But more importantly, the big show in the provinces is being put on because the agro boyz are having their own party in Rosario, with plenty of people expected to turn up and plenty of anti-Kirchner rhetoric on the menu, too. Therefore the Kirchners have decided that the best thing to do is put on their own show of strength in the provinces and polarize the issue even further.

At the Salta show, to provide some guaranteed atmosphere and numbers the Kirchners' ally, stupid idiot and unspeakable thug Luis D'Elia is bussing some 10,000 people from Buenos Aires to attend the gov't show (apparently, each attendee is being given 200 pesos, free food and overnight hospitality as incentive to counterweight the 20 hours or so it takes to bus from the capital). Thus our mediocre modern day version of Evita will give her rousing speech to a rent-a-crowd of descamisados, proving once again that style is more important than substance in Argentina. At the same time the ruralists will be spitting on her image in unison at an event that will probably outnumber the gov't show.

And then, after all this posturing and showboating is over and done with, on Monday the agro representatives are supposed to go back to the table with the gov't boyz and come to an agreement over the export taxes and such, a dispute now in its 72nd day. The chances of a happy ending to all this are very, very slim.

Saturday is natterday, eat and get fatterday. It's also the day for..............

SNEAKYDEAKY QUIZ XI

Hello, and welcome to this special edition of the quiz, and after three (YES THREE!) mails last week complaining that the quiz is too tough, you guys out there have finally broken my will. So let's just get on with this week's edition, and the prize will go to THE FIRST person who writes in with a 10/10 score.

And what's the prize? Very simple, it's ONE MILLION DOLLARS*; no flimflam, no sillystuff, it's show me da munney time. Here we go!!

1. According to Andres Oppenheimer of the Miami Herald, which of these local leaders is a "Narcissist Leninist"?a) Cristina Fernandez de Kirchnerb) Hugo Chavezc) Lula da Silvad) Fernando Lugo

2. According the the Investor's Business Daily, which of the following countries is living under the despotic rule of a dictator?a) Venezuelab) Colombiac) Chiled) USA

3. According to the Wall Street Journal, which of the following blows his nose on a handkerchief printed with the image of George W Bush?a) Michelle Bacheletb) Alvaro Uribec) Hugo Chavezd) Derek Zoolander

4. According to the Irish Independent, which country helped the IRA in its campaign to take over the world in 1999?a) Venezuelab) Boliviac) Ecuadord) Mexico

5. According to Moises Naim, which of the following heads of state eats babies for breakfast?a) Calderonb) Fernandezc) Chavezd) Bachelet

6. According to Condi Rice, which of the following world leaders smokes crack cocaine every morning?a) Rafael Correab) Hugo Chavezc) George W Bush (tempted to get this question wrong?)d) Gordon Brown

7. According to Robert Fung, which world leader has refused the most bribes in 2008?a) Hugo Chavezb) Hugo Chavezc) Hugo Chavezd) Hugo Chavez

8. According to the Colombian government, which South American president has the number "666" as a birthmark?a) Klishtinab) Hugoc) Lulad) Alan

9. According to Ricardo Hausmann, which country went bankrupt through mismanagement of oil revenues in 2003...and then 2004....and then 2005....and then 2006... and then 2007, and will certainly go bankrupt in 2008?a) Venezuelab) Brazilc) Perud) Mongolia

10. According to the people of Venezuela, which world leader currently enjoys a 66.5% approval rating after 9 years as president and has won two presidential elections and a recall election in those years, all in elections that were universally declared free and fair by the official world bodies overseeing the votes?a) Hugo Chavezb) George Bushc) Gordon Brownd) Alan Garcia

5/23/08

The Colombian story about the veracity of information on those FARC laptops is unravelling. Here's the link to an excellent piece of investigative journalism by Daniel Denvir of NACLA, which explains the following:

This was the site of the FARC camp after being hit by Colombian bombs

And this, according to the Colombian police, is the computer hardware recovered from the site. Click to enlarge and find the scratches/bends/dents etc. There aren't any.

1. On March 3rd (remember that date), "El Tiempo", the biggest circulation newspaper in Colombia, received photos from a Colombian government official. El Tiempo displayed the photos as part of a gallery taken from the FARC computers.

2. The newspaper then quietly took the photos down from its gallery of snaps about a week later.

3. It now appears that the photos were taken by Colombian gov't officials in Quito, Ecuador, as part of a surveillance operation on a left wing group's meeting.

If all this is true (very likely by the looks of things, especially taking into account how El Tiempo has been caught in an obvious lie or three), what we have is a clear indication that the Colombian government has planted its own information in the public sphere and called it FARC material. That lapse in the chain of custody from March 1st to March 3rd, when Colombia accessed the FARC computers forty eight thousand times before handing them over to an accountable authority is becoming very significant. To cite the famous Interpol report:

Finding 2b: Access to the data contained in the eight FARC computer exhibitsbetween 1 March 2008, when they were seized by Colombian authorities, and 3 March2008 at 11:45 a.m., when they were turned over to the Grupo Investigativo de DelitosInformáticos of the Colombian Judicial Police, did not conform to internationallyrecognized principles for handling electronic evidence by law enforcement.

Of course, that same Interpol report is being used almost non-stop to say that the FARC files are genuine and that Chavez and company are very very naughty boys. What it in fact said was....

Finding 3: INTERPOL found no evidence that user files were created, modified ordeleted on any of the eight seized FARC computer exhibits following their seizure on1 March 2008 by Colombian authorities.

....and nothing else. Now is it just me, or would the following finding also be true?

Finding 3: INTERPOL found no evidence that user files were not created, modified ordeleted on any of the eight seized FARC computer exhibits following their seizure on1 March 2008 by Colombian authorities.

Words, eh?*

A large hat tip for the headsup on Daniel Denvir's report goes to borev.net, and it's worth going over to borev to get a large dose of his snark on the subject (borev does it so much better than me). That dude makes me laugh.

PS: What were Colombian nationals doing taking photos on an undercover job in Ecuador, anyway?

HAMLETSlanders, sir: for the satirical rogue says here that old men have grey beards, that their faces are wrinkled, their eyes purging thick amber and plum-tree gum, and that they have a plentiful lack of wit, together with most weak hams: all which, sir,though I most powerfully and potently believe, yet I hold it not honesty to have it thus set down, for yourself, sir, should be old as I am, if like a crab you could go backward.

POLONIUS[Aside.] Though this be madness, yet there is method in 't. Will you walk out of the air, my lord?

HAMLET Into my grave.

POLONIUS[Aside.] Indeed, that is out o' the air. How pregnant sometimes his replies are! a happiness that often madness hits on, which reason and sanity could not so prosperously be delivered of. I will leave him, and suddenly contrive the means ofmeeting between him and my daughter.—My honorable lord, I will most humbly take my leave of you.

HAMLET You cannot, sir, take from me any thing that I will more willingly part withal: except my life, except my life, except my life.

The other day I was all sanguine about Mercado Libre (MELI) and the fact I had covered my short at $55, made a buck and missed the downmove I was expecting all this time by 4 trading days. At the time MELI was trading at $49.

I'm not so philosophical now. MELI is at $40, and I missed a big-winning trade. RATS, RATS, AND TRIPLE RATS (and I'm trying my hardest to keep it clean).

(click to enlarge)

It's very frustrating to have called the fundamentals correctly right here, then time the entry into the short here almost to the cent, then miss out cos of being chicken and covering too early. These things happen to the best of us (and I've never pretended to be the best of us, either). As mentioned in previous posts, my vision is good but my timing often sucks.

Never mind...there's other fish in the sea. Right now I see a good short in BMA, the Argentine Banco Macro, which will get bad karma from the agro non-talks. The agro strike is likely to turn rather nasty if there's no agreement today, and the capricious way the gov't is acting gives zero reason to be hopeful of a settlement. On 25th May there's a big rally planned in Rosario to celebrate one of Argentina's traditional holidays (look it up in wiki if you like), and the agro will surely use it as a show of strength.

Meanwhile, Klishtina is rapidly turning into the worst president on the continent (and that, my friends, is saying something). My best pal in Buenos Aires wrote me on this subject today. He's very sharp on his local political scene, and his view of Klishtina is worth translating and repeating here.

DB sez: "Re. Cristina, she has no charisma. She's like a bad headmistress of a primary school. It's incredible how she imitates Evita when she talks, but she isn't popular. The poor reject her because she "speaks difficult", and the rich reject her for being a "goddam working class peronist"*. She's made a good decision in dedicating herself to travelling."

So add the deteriorating political scene to the deteriorating popularity of the president and the ridiculous economic policies being used in Argentina, and do not expect this movie to have a happy ending. Duhalde waiting in the wings, I fear....

* The exact phrase is "grasa peroncha", which is much stronger and more derogatory than my translation. But you get the idea, I'm sure.

Today sees the Union of South American Nations (UNASUR) meeting in Brasilia, and the 12 heads of state attending will be hoping and praying that the net return from the show is zero, because that's about the best result available.

The agenda is to formally sign up to the new body that is seen as a latino version of the European Union, but the underlying atmosphere was set earlier this week by Colombia, who were due to take the revolving post of president of UNASUR this time round but have declined the role, citing the atmosphere between itself and its neighbours and saying words to the effect of "We'd be pretty stupid to do this right now Lula...sorry and all that." The word "stillborn" immediately springs to mind.

This meeting will also see Brazil formally proposing the South American Defence Council, ostensibly a joint defence force along the lines of the UN task forces, but originally conceived in Venezuela as a counterweight to US military influence. That means that, however good the idea may seem in its present form, the initiative is doomed to failure.

So what we're left with is a photo opportunity or two, a signing ceremony and hopefully not many comments from Chavez, or not many words exchanged between Correa and Uribe, or no more spats between Garica and Morales, or not many questions aimed at Lula about how his Environment minister suddenly resigned last week while saying she was "fed up with the lack of gov't support".

Unions? These people should look up the definition of the word before signing any pieces of paper today.

UPDATE 11:50am: Here's Bloomie's take on the thing. Not that much different from the above, with a quote or two from the just-completed signing ceremony thrown in.

5/22/08

The much-anticipated talks between the Argentine government and the agro boyz kicked off today. After hours of discussion tonight the first meeting has just broken up.

Strangely, the gov't said the talks had been very good and "fruitful", while the agro boyz said the gov't had deceived them, stonewalled them, did not want to talk about lowering the antagonistic export tax, with one representative saying the meeting had been flat out "bad". Notice any differences between the two sides?

Once I'd stopped laughing, I did a quick check on the IOC website and within three minutes found out that the bid would be a total waste of time and just as funny for the Olympic bigwigs who decide on these things, eliciting a response that doubtless begins with the words, "I'm sorry, but......". That's because all official bids had to be presented by September 2007, and those bidders had to submit the necessary application paperwork no later than January 14th, 2008. The seven bidders have done all that (namely Baku, Chicago, Doha, Madrid, Prague, Rio de Janeiro and Tokyo).

But away from the fact that it just ain't gonna happen, just the idea of Peru putting on an Olympic Games is enough to keep me chuckling all weekend. Where's the infrastructure? The stadia are a disaster, quite frankly. Where's the money for the new infrastructure? And then where are the millions of visitors going to stay? How many of them expect 5 star hotels all the way? Is this what the miner's voluntary social fund is being earmarked for, instead of the petty things in life like helping the 42% of Peruvians under an already extremely low poverty line? Garcia should ask around Montreal and find out how much these things cost in long term debt, for one thing. That's just for starters; then there's the image of one of the world's least organized cultures having to put on a seamless show for a whole month....wonderful stuff.

Nah, this all must have came about over one of Alan Garcia's now renowned "extended lunches"(ahem). In Otto's mind's eye, after most of the post-prandial bottle of X.O. is downed, the table starts to reflect on how well the one day UE-LAC summit went, and then thinks about its new superduper investment grade (which apparently makes them into instant serious country), and then someone says "How can we top that?". At which point, a "relaxed" (ahem) Garcia Perez declares his country contender for the next Olympic Games, and the applause is deafening.

This afternoon, Foreign Trade Minister Mercedes Araoz was trotted out to defend the idea. With a face as long as a summer's afternoon in Tierra del Fuego, she claimed that the whole scheme was legitimate and it wasn't some smoke'n'mirrors plan to divert attention away from the deep social problems in the country. Well, no point in disagreeing with that, cos Peru Olympiad 2016 is destined to hold the world's attention for a lapse of time measured in nanoseconds.

Honestly, you guys are living in the wrong continent. Far too much fun down here. ¡Viva LatAm carajo!

What the English speaking world is now waiting for is the publication of the new draft mining law, which will then give you guys up there some hard facts to work on. But the fact is that anyone with a bit of analysis sense can see that ARU is no longer threatened to the point of extinction by the political manoeuvrings in Ecuador; quite the opposite, in fact. This is just another facet of "getting" Latin America; those in desperate need to see things officially written down and signed by a minister are missing both the point and a marvellous buying opportunity. Aurelian will absolutely fly once the mining law hits the streets, and it will fly again when the draft law becomes the law.

"The use of natural resources is a fundamental part of the program of change and of the development of the country, and the position of the (government) block is "yes" to responsible mining."*

This kind of statement doesn't really leave much to debate, does it? Or if you still doubt, put yourself in the hypothetical conversation

Correa to Aurelian; "Are you a responsible miner?"Aurelian to Correa; "Yes. We have the track record to prove it."Correa to Aurelian; "That's true. Ok, get mining."

END OF STORY

But this won't get much airtime amongst the so called analysts who may well know the best way to calculate a NAV or can talk dip angles on drill cores with the best of them, but couldn't analyse themselves out of a paper bag when it comes to the local political scene. Those ridiculous panic calls of sell ARU with targets of $1.40 make professionals look stupid as stupid can be, and therefore the same professional doesn't want to attract attention to himself. Yes, that means you, Eric Zaunscherb of Haywood. Investors pay good money for investment advice. Of course the pros are human too and will get a few wrong, but when the advice is as shockingly bad as we've seen over this whole Ecuador mining law issue, these people should be sacked without further ado.

Buy Aurelian. It's so obvious, it's almost laughable. The joke's on you, Canada.

5/21/08

Good news for Peru and Brazil; it wasn't Moody's that put them up to investment grade.

Brazil was upped by S&P, and Peru was given the accolade by Fitch. Time will tell if they remain in the land of the believable. Meanwhile, the praiseworthy FT scoop did this to Moody's stock today (and note the volume underneath, too):

News that Moody’s might have made such mistakes emboldened the company’s many critics and sent its stock price tumbling. Its shares closed down 15.9 percent, to $36.91, their biggest one-day decline in almost a decade.

The attorney general of Connecticut, Richard Blumenthal, who has criticized the practices of Moody’s and other ratings firms, said that he was investigating how Moody’s had dealt with the possible errors in its computer models.

“One of the areas that most concerns us is the potential favoritism and abusive and illegal practices that involve dealings with the companies that they rate,” Mr. Blumenthal said in an interview.

News of the possible errors, first reported Wednesday by The Financial Times, comes as Moody’s and the two other big credit ratings firms, Standard & Poor’s and Fitch Ratings, are under scrutiny for how...........etc etc

MELI has sunk to $49, four trading days after I covered my short. I'm tempted to shake my fist at the market and shout "Rats!" a lot, but the cover wasn't the worst call under the circumstances. These hot sheep-fueled stocks can run away from you at any time.

Word from reliable sources is that Hochschild (HOC.L) has offered Minera Andes (MAI.to) U$250m for the 49% of the San José silver/gold mine that HOC doesn't already own. MAI is holding out for U$300m, but a deal is likely to happen.

MAI.to currently has 188.9m shares outstanding, and 223m fully diluted (most options/warrants are in the money). So if we use the fully diluted count, $300m would work out at U$1.35 cash per share, which is extremely sexy for a company currently quoted at $1.37 (in loonies). Minera would then have the cash on hand to move forward seriously on its wholly owned Los Azules copper project, also in Argentina, that has been returning very good drill results recently. Minera has other exploration-stage project in the region, too.

If the Hochschild deal goes through, you've gotta like MAI.to at this price. Buy it now.

A whole bunch of things, that's what, and none of them look great for the short or medium term stability of Ecuador's biggest and most important industry. It's difficult to cover such a big subject in a blog post, so the following will probably have to be forgiven for a lack of style and narrative flow.

Yesterday, the President of Petroecuador, Fernando Zurita, offered his resignation to Studmuffin Correa at a meeting. Correa accepted the offer. Bye bye. The reason for the job loss? On Monday, Petroecuador announced it was lowering 2008 production estimates from 180,000/190,000 barrels per day (bbl/d) to 172,000 bbl/d, which must have gone down like a positive blood test result at a brothel. 8kbpd may not sound like a lot, but at $80/bbl gross profit margins (it must be around there right now) that'd be U$2.3Bn less for the state per year. Adds up quickly, no?

The reason for the production slip? The now ex-head honcho, who is also a bigwig in the Ecuador military, said that bureaucracy at the company was making progress very difficult, and latest drill results had been disappointing.

The reasons for saying that? The drilling letdowns might have been plain bad luck (it happens in oil), or it might have been incompetence (it happens in LatAm) or maybe a combo of the two. Clearly, getting a marine admiral to run an oil company may sound like a good idea on the surface (for both political and disciplinary reasons), but oil guys are a special breed and the industry is a tough one to master. Horses for courses, as they say in Blighty.

But rumblings below the surface (no pun intended) make things a little less stable than Correa would like, I'm sure. Army bigwig Zurita was moved in to turn Petroecuador around back in November; 6 months later he's ousted. In his short statement yesterday, Zurita sounded more than a bit bitter and twisted about the situation. Correa may well be making a tactical error in antagonizing the ranks of the military like this, cos one thing recent history has taught us about Ecuador is the need to keep the armed forces on your side.

On another front, Scottish energy consultancy firm Wood MacKenzie has been hired by the government to poke around Petroecuador and come up with a modernization plan. Woodmac is about two months into the job and due to report in November, but most of the U$4m spent on the report is going to be basic common sense anyway:

cut out the red tape

stop the bribery, corruption, free tankers of oil etc

buy some drill rigs, for gawd's sake

On that subject, Petroecuador is currently trying to spud the whole country with just five rigs, a mad state of affairs. Three more rigs are due on line in July, but even with eight teams the lack of seriousness in Ecuador's overwhelming source of export dollars is plain to see.

And all this also means a position of weakness in the ongoing negotiations with the foreign oil companies over the new contracts. Back on March 4th, Correa gave the oil companies a one week ultimatum to agree on the new windfall tax regime else risk being kicked out. The oilers basically ignored him, and last week's formal announcement of a windfall tax of 70% if the companies sign on now is a clear back down on the part of Correa. And even now the oil companies don't look like they're rushing to sign on, which doesn't really surprise either. Correa may be able to push the mining industry around and get them fearing the wrath of the Muffin, but the lifeblood industry of oil is a harder nut to crack for sure.

Fact is that that Ecuador is not in the position to go it alone on oil production right now, and the foreign experts know it. OPut simply, Ecuador needs them more than they need Ecuador. Then add to the mix the new refinery Ecuador wants to build as a JV with PdVSA which comes with a U$6.6Bn price tag. As half of that cost will be Ecuador's responsibility, the state's need for a couple of years' worth of good production figures to cash in on the high barrel prices right now becomes even more pressing.

Then, finally, there's the whole ITT issue. Ecuador's biggest untapped oil field(s), that contain 1Bn barrels of easily accessed heavy crude an possibly 5.5Bn barrels in total could be the scene of a big showdown between the ecology groups and a government hungry for revenue. Today, Ecuador is giving the head of OPEC, Abdala Salem Al Badri, a guided tour around the area, hoping that he might warm to the idea the country had last year to keep the field undeveloped in exchange for U$350m a year in world green guilt money. If not, it's likely that ITT will get moved into the tendering stage and cause a godawful ruckus amongst the treehuggers.

1. How much of the national currency reserves did the Argentine Central bank have to use this week in order to stop the peso from going to hell?

a) U$200mb) U$450mc) U$600md) U$750m

The correct answer is d), U$750m. That's big moolah, dude. On the other hand, the BCRA has about 50.3Bn on hand for these kinda moments (according to April figures), so the billion or so they've shelled out isn't going to upset the applecart by too much.

3. Interpol announced that although there is no evidence that the FARC laptops had been tampered with, they had been in Colombian hands and outside of a legally correct chain of custody for two days (March 1st to March 3rd). According to Interpol, how many times had the computer files been accessed by Colombia in those two days?

a) Zero timesb) 500 timesc) 2,000 timesd) 48,000 times

The correct answer is d), 48,000 times. 48,055 times, to be exact, which works out at a mere 17 files a minute over the two days the computers were hidden from view. Nothing suspicious about that, oh nooooooooo...................

The correct answer is c), Klishtina. Here's the photo again, and then later they're all happy and wavy once the belle of the ball arrives:and here's Klishtina arriving fashionably late "by accident".Oh jeez, I thought it was just my wife who pulled stunts like this.....................

I asked:5. What's the name of Otto's dog?a) Bennib) Hugoc) Muttleyd) Zoolander

The correct answer is c), Muttley. Nobody got this one right. As a matter of fact the 1970s cartoon dog is called "Patán" in Spanish speaking countries, so nobody gets the joke round my neighbourhood. Great dog, mind you. Sleeps all day and bites burglars at night.

8. Brazilian petrochemicals giant Braskem (BAK) announced this week it would build a new U$800m chemical plant. Where will the factory be built?a) Venezuela

b) Omanc) Perud) South Korea

The correct answer is c), Peru. Have you noticed how Brazil is trying to leave the non-serious country label behind and impress the world with its newly found business acumen? Yeah, me too......I still don't buy it though.

And there we jolly well go. As for this week's winner, that decided honour goes to CARL Z, who racked up a score of 6/10 and beat the rest of you who languished on 4/10 or even below. Well done Carl Z, nice to see a new face on the winner's rostrum.

So until next Saturday, when the eleventh quiz will come flying at yer eyeballs...

5/20/08

The Economist's Intelligence Unit published its annual "Peace Index" today, which is primarily designed to show just how boring the rest of the world is compared to Latin America.

Here's the link to the full list, and here's the link that explains how these people wasted their time in a bunch of meetings to decide just how peaceful country X is compared to country Y. But if we skip the obvious stuff about dull-as-dishwater "winners" (like Iceland, Denmark and the excruciatingly, mindnumbingly, suicidally boring New Zealand), and the even more obvious Iraq (number 140 of 140), let's see how LatAm countries get on this year; here's the list of the countries that really matter, starting with the most peaceful and working down:

Chile (19)How boring? These dudes don't think they're Latinos, so it's not surprising. Wake me up when it's all over.

Uruguay (21)How dangerous can 3.5 million people and 300 million cows and sheep be, anyway?

Peru (80) Down 5 places. The only reason I can think of is the extra defence spending Peru has taken on. Peruvians are still as chicken as ever.

Brazil (90) Ordem e Progresso on the flag, mayhem in the streets. A very respected local economist recently told me that the average murder rate is 50,000 per year for the last 10 years....wowsers!Mexico (93)Down 7 places, and suffering badly from the drug cartel war, obviously. That and the macho man attitude that'll keep Mexico in the lower half of the list for the next 200 years.

Venezuela (123)Down 8 places; Hugo buys those subs and it'll only get worse, ya knowz. The murder rate in the Caracas shanty towns is probably the main culprit here.

Colombia (130)Congratulations guys, you're still the most dangerous, warmongering country in the region. This will only surprise nobody down here; these dudes are capable of starting a fight with VZ by boasting how much more macho and dangerous it is in Colombia.

The trick seems to be to live in a country that isn't too dangerous, but at the same time not boring as hell to live in. Uruguay could fit the bill, but you gotta like the taste of 'mate', i'm telling you now. Argentina also appeals, but the politics really drives you mad after a while. So maybe a few years in Bolivia, Peru or Mexico is about the right pitch. But whatever place you choose, just remember that living in the developed world is like going through life without drinking, smoking or making love. It doesn't mean you'll live longer..... it'll just seem that way.

We'll leave the last word on this list to USA State Department spokesman Sean McCormack who according to Reuters said of his country's 97th place finish, "Often times, you have to do difficult things and a lot of times, people don't agree with them. They don't like them.......A lot of times you fall down in these lists but at the end of the day it is in defence of democracy and the way of life we have enjoyed over the past several decades." Or in other words, the way to peace is best achieved by the killing of human beings and the constant threatening of other countries.

Good news for Latin America. Good news for world stability. Good news for the future of the region. The Interpol/FARC laptop episode can now be classed "all over'n'done with" and nothing for sane people to worry about. The reason? The increasingly ridiculous Andres Oppenheimer is now trying to pump new life into the issue, which is a sure sign of desperation from the spin-merchants.

Y'see, the good thing about being a syndicated journalist is that everyone gets to read your crap at the same time, so whether it's the home base of the Miami Herald, the Modesto Bee, the Arizona Star or any other number of outlets (just put the first line of his column into Google search...you'll see for yourself), his daring and original opinions reach the pre-bigoted readership that wants to read such crap in doublequick time. However, the mere fact that Oppenheimer has to screech so loudly, calling Lula a twat for backing Chavez amongst other things, shows just how much of a false polemic the whole FARC laptop thing has become. The Washington Post also had a good go at spinning the whole issue to within an ace of total lies yesterday, with cracking lines such as;

"...What is already known is enough to demonstrate that Mr. Chávez and senior members of his government, army and intelligence service had a far-reaching clandestine relationship with the FARC and that Venezuela offered the group weapons, money and harbor on its own territory..."

This directly contradicts testimony by OAS Secretary General Jose Miguel Insulza at the USA House Subcommittee on Western Hemispheric Affairs. Insulza said (sorry, that should be "stated under oath"...try it one day, Andres) there was "no evidence" linking Venezuela to the Colombian rebels. The problem with Insulza's statement is that it's not what the USA media want you to hear, therefore it goes unreported.

Fortunately, it seems that this time ordinary Joe Public just isn't reacting to the shilling of Oppy, WaPo, Fox News etc. This is probably due to small things like "freakin' obvious logic"; I mean, just cos I write about Alan Garcia a lot, does that mean Garcia communicates with me? It might have something to do with the fact that people are bored with warmongers and their lies, too. Oppenheimer finishes his op-ed by saying he doesn't support the US calls to class Chavez as a friend of terrorism. Not because the idea is ridiculous, but because it'd give Chavez another reason to hate the USA. Jeez, why not just write "nah na na naaah naaaah" or "I'm rubber you're glue" or "Hugo and Fidel sittin' in a tree, K-I-S-S-I-N-G" in your next note if that's the intellecual level we're dealing with, Oppy?

This Argentine government of Klishtina (well, Neshtor really) does not inspire the least bit of confidence going forward. However much I like TEO as a company from here (and I do...I like it a lot for its growth and earnings mulitples as stands), there's no reason to be heavily exposed to this awful economic model when Brazil, Mexico, Peru and others offer better structural stability.

So, now that TEO has bounced back from the silly valuations of last week to U$20...

....it's time to lighten.....not sell completely, but lighten.

My mistake with the play was to think that the country's bonds, financials etc would be badly affected by gov't policy moves, but people would see TEO in a separate and better light. Hey, we all make mistakes as investors, and this won't be my last one, either. However it was right to wait out the wholesale overselling of the last month, cos the dudes who just panicked and dumped Argentina without using grey matter will be getting interesting e-mails from their bosses this morning.

So, to tidy up my Argentina exposure, here's the general game plan:

Sell 50% of TEO

Go short Argentina bonds at some point today

Use this long TEO/short sov debt pair play in tandem going forward.

This pair play will surely get adjusted without being mentioned on this blog according to the circumstances as they unfold, but this see-saw will allow a hedged exposure that may well win on both sides and will certainly avoid any serious losses.

5/19/08

As noted this morning, as soon as anything LatAm gets to feature in the WSJ it has to be over bar the shouting. After a three hour meeting this afternoon, the agro boyz have just announced that they will call off the strike when on Wednesday morning and go back to the negotiation table with the gov't boyz the same day. And as expected, those late to the party up North would have seen the Peso, the Merval and the bonds rally today and thought, "What's all the fuss about, Felix?"

However, this may well be just another episode in a rather boring soap opera that has more in store, as agro is still pretty pissed at the raised export taxes and will be pushing for a reduction when the two sides meet Wednesday. Word is that the agro leaders spoke unofficially with Klishtina's cabinet chief Alberto Fernandez today, and stipulated that to call the strike off the subject of the export tax hike must be on the table "seriously" the next time the two sides meet.

How to play this? Well, first I told you to short the Argy bonds, and they went down. Then on May 14th my call was to cover and go long, and sure enough they rallied in fine style. Quite frankly, those were two rocking calls. So this time the play will be flip and go short Argentina bonds again Tuesday, but not right at the bell. Let the bonds get a pop from the greenhorns, and the sell mid morning. Selling the news is the right play here, and there's every chance that the next round of talks do not go well which would turn any small gain into a big one. It all depends on the government's attitude, and whether Klishtina decides to give a little in return for a bit of peace.

Meanwhile, as mentioned here last week the agro boys are getting together and will chat with the gov't boys to try and get some sort of agreement. Also, there's a big upmove in a couple of Argentina banks this morning (examples, GGAL, BMA) on the back of the Argentine bonds rebound last week (which.......err....again...we called). Look, if i don't toot my own horn now and again you can be sure that nobody else will do it for me. Fact is that up there nobody cares about LatAm until it's too late.

I was totally unimpressed with the Mercado Libre (MELI) earnings last week, but that didn't stop the sheep from buying the stock back up to U$55. As mentioned before, I covered my MELI short at a very small profit rather than fight the tide of illogic. I've looked at the company previously, but a few days ago a reader mailed me and said something along the lines of "What about NETC, dude?", and he was spot on with the call. Let's have a look at a much better LatAm company than the overhyped MELI.

Net Servicos (NETC) is a cable TV/internet/phone company in Brazil. In fact it's the biggest single cable player in Latin America. In its Brazil market it maintains a 46% share of the pay TV market, and it has a rising 17.5% share of the broadband internet market. It has recently started one of those fashionable 3-in-1 "triple play" packages for clients that offer cable TV, internet and fixed line phone in a single package, and the growth shown so far has been very good.

This chart shows the quarterly growth in its client base for the three sectors.....

.......and you can see that the company is adding to its traditional pay TV base in fine style. As little as three years ago, those internet and phone clients basically didn't exist.

It's even growing in its core cable TV division, and unlike its main competitor Sky that has lost 2% of the market in the last 12 months, NETC has kept its share constant at 46%. This provides a solid revenue base on which the new sources of income are building. Or in simple terms you have a company in a fast growing sector in one of the world's hottest markets that can also rely on a solid revenue base to build its business.

Here's the revenues and EBITDA numbers for the company.....

.....that give a good idea of revenues growth. Final after-tax net earnings have been disappointing the market recently, which goes some way to explaining why NETC has lagged the Brazilian market recently.......

this chart is for the Bovespa stock comparedto the bovespa index

this chart shows the Nasdaq quoted version of the company over five years

......... but you as an investor shouldn't worry too much about the final bottom line right now as long as the revenues keep growing at the present pace. And as it happens, that YoY revenues growth has been constantly over 50% for the last year. Nothing wrong with the EBITDA evolution, either.

As usual this thumbnail overview will hopefully get you interested in the company enough to find out more details, and doing your own DD is as vital as ever. But the bottom line is that NETC gives the investor a much smarter way of playing the booming LatAm internet sector. The PE of 20X compares to betting on the 200X and above of MELI right now, and NETC also enjoys great growth numbers. Why risk your money on the latest sheep-fashion stock, when you can buy a strong earning growth company for less money?

5/18/08

There was once an equities analyst who had been dating three women for some time, but realized it was time to settle down, be serious about life, marry one of them and raise a family. So to help the difficult decision ahead of him, he decided to give each one of his girlfriends U$5000 to see how each of them spent the money.

The first one went out and got a total make over. New clothes, new hairstyle, manicure, pedicure, the works. "I spent the money so I could look pretty for you because I love you so much," she said.

The second one went out and bought new golf clubs, a CD player, a television, and a stereo and gave them to the man. She said, "I bought these gifts for you with the money because I love you so much."

The third one took the $5000 and invested it in the stock market, doubled her investment, returned the original $5000 to the man and reinvested the rest. "I am investing the rest of the money for our future because I love you so much," she said.

The analyst thought long and hard about how each of the women spent the money and then married the one with the biggest tits.

A great note in today's "Critica de la Argentina" daily newspaper run by the country's top investigative journalist, Jorge Lanata. Today, Lanata exposes the recent overpricing of contracts for the Yacyreta hydroelectric dam that were not put out to public tender and the winners of the contracts were never revealed.

The whole note found on this link goes into considerable detail about the whole affair and is a must-read for Spanish speakers, but with the contracts adding up to over U$300m in total and alleged overbilling of up to 90%, there's plenty of grease money involved here. The list of people who won the contracts is interesting, too.

Benito Roggio e Hijos, the construction firm often favoured by the Kirchner gov't

ESUCO S.A, run by Carlos Wagner who is "coincidentally" the president of the Argentine Chamber of Constructors.

Supercemento S.A.I.C., a company already under investigation for winning overpriced tenders

Cartelone: Another favourite in the local building scene.

Eleprint: Used very often as the contractor for road building in the Kirchner's native Santa Cruz.

JCR S.A., associated with the Kirchners in private building contracts

IECSA: owned by the cousin of BsAs City's mayor Macri, an early frontrunner for the next presidential election.

It's another example of the decadence of the Kirchner rule. The whole thing stinks, and while the gov't hides behind its populist rhetoric backed up by its thugs that threaten violence to those who dissent, its bigwigs are stuffing their back pockets with filthy lucre. Just another day in Argentina, folks.......

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